How Do You Approach the Topic of Legacy Planning?

Legacy is a sensitive subject to broach with clients; however, some professionals might argue this inevitable conversation is, in its own way, as important as all investment strategy and tax mitigation discussions expanded upon throughout the advisor-client relationship.

To properly assess a client's legacy planning needs, there are three main questions that need to be discussed in great detail: 1) What is the monetary value of the desired legacy, and why? 2) How thoroughly do we want to explore the tax implications of said legacy? 3) How removed from potential risks do we want this legacy to be?

The solution to a client's legacy needs can be as simple as taking out an inexpensive term life insurance policy to provide blanket coverage for the household, and as complex as discussing Roth conversions in a traditional IRA and the establishment of a trust and proper estate planning. The answer to each one of those questions will inevitably lead the conversation in the most appropriate direction.

We begin our legacy planning process with questions that don't involve dollar amounts. For example, is it important to you to be remembered in your community? What impact would you like to have on your children, grandchildren, great-grandchildren, and beyond? The solution will largely depend on these answers, but can include a will, various types of personal or charitable trusts, a family foundation, and/or a donor-advised fund.

When discussing legacy planning with clients, I start by understanding their values and goals for their legacy. I explain the importance of a well-structured estate plan, which includes wills, trusts, and beneficiary designations. One creative solution I recommend is setting up a charitable remainder trust, which provides income to the client during their lifetime and benefits a chosen charity after their passing. This approach not only fulfills philanthropic desires but also offers potential tax advantages. Clear communication and a personalized strategy ensure that their legacy aligns with their wishes and provides for their loved ones.

My top three legacy planning strategies are:

1. Moving assets that are a pain to inherit into assets that are a joy to inherit. Painful assets include things like partial ownership in real estate, partial ownership in a business, or partial ownership in a car. Joyful assets are cash, Roth IRA, and full ownership in a special family heirloom.

2. Look into a dynasty 529 plan, as seen on my blog, where you could build a multi-decade-long education fund for your family in a very tax-efficient manner.

3. Consider writing a letter to your loved ones explaining how you hope they use the gifts you are bestowing on them. And consider making gifts before you die so that you can be a part of the joy!

The age, experiences, or stage of life the client is in can make the subject easier or more challenging to approach. Adapting to that client's state of mind, one effective approach is to reframe the topic from being about them and how they're remembered to being about those people or causes they care most about.

For example, speaking to a veteran, you might ask, "If your child was about to deploy to a region of conflict, what would be your best advice to prepare them for the battles ahead?" Then, expound: Life is full of conflicts; how might you best prepare those you love for the battles they'll certainly face after you're gone?

People are most remembered for how they've helped others more than specific accomplishments. Framing the topic as a literal, once-in-a-lifetime opportunity to share their love, wisdom, and resources is more dynamic than asking them to reflect on their own mortality. From this perspective, not only is the subject of legacy more approachable, it becomes more meaningful and personally fulfilling for the clients themselves.

It's very important to us to determine exactly what the word "legacy" means to our clients. Most hear the word and think they have to have their name on a building or a fully-funded scholarship when they pass away. This is not the reality for most; for some, it could be taking their family on a large vacation either while alive or after they have passed away. It could be providing lasting memories for those close to you from shared experiences. There's a large spectrum of what our clients want to provide for others.

If the intention is to pass down wealth to second or third generations, then there are a few key steps we take in order to ensure a successful transition.

The first step in successful legacy planning is to involve the second generation as soon as possible; the more they know about their parents' financial plan, the more successful the transition will be.

The second step is making sure there is a solid financial planning knowledge base for the second generation to build upon. No amount of inheritance will outlast spending problems or poor investment strategies.

Then we can start to get creative with clients. Do we need to lock up money in trusts for minor children until they obtain certain threshold ages? Do we need to not distribute money until they have earned a college degree? Do we need to put further restrictions on inheritance money for a problem child? These are all questions we get answered in initial estate planning meetings.

With the sunsetting Tax Cuts and Jobs Act in 2025, advisors should be having more estate planning conversations with high-net-worth clients. The shift back to pre-2017 lifetime exemption levels will affect many high-net-worth families, and they need a plan in place before then.

As part of our financial goal determination process, we ask if one of your goals is to leave a large estate to your children. Most feel that they have already given their children an education and tools, so they plan to enjoy spending their money on themselves. However, they think a will and a trust are only for the super-rich. We show them that this is no longer true, as the landscape of estate planning has evolved with the advent of online platforms.

The advisor's reluctance to address these topics is often more of a taboo than the client's, and many clients are grateful that we broach these subjects because most people do not discuss them.